In a certain year, if your return on investment is 4.40% and the inflation rate during...

In a certain year, if your return on investment is 4.40% and the inflation rate during that same year is 1.20%, what is your real rate of return?

Expert Solution

Based on Fischer Relation,

Nominal rate = Real rate + Inflation

4.40% = Real rate + 1.20%

Real rate = 3.20%

=============================================

Some texts also quote Fischer Relation as:

(1 + Nominal rate) = (1 + Real Rate) * (1 + Inflation)

(1 + 4.40%) = (1 + Real rate) * (1 + 1.20%)

1.044 = (1 + Real rate) * 1.012

1 + real rate = 1.0316

Real rate = 0.0316 = 3.16%

jeff jeffy answered 1 year ago

The real rate of return on an investment is 3% and the inflation rate is 2.25%....

The real rate of return on an investment is 3% and the inflation rate is 2.25%. What is this investment's nominal rate of return

If an investment providing a nominal return of 10.5% only offers a real rate of return of 6.4%, then the exact inflation rate (%) is closest to

If an investment providing a nominal return of 10.5% only offers a real rate of return of 6.4%, then the exact inflation rate (%) is closest to ________%.

"You earned a 14.25% return on an investment last year. Inflation was 1.25% last year. According...

"You earned a 14.25% return on an investment last year. Inflation was 1.25% last year. According to the Fisher Equation, what was your real return last year?" 12.84% 13.00% 14.25% 15.50%

your savings account yielded 1.5% last year. the inflation rate was 2%. what real return did...

your savings account yielded 1.5% last year. the inflation rate was 2%. what real return did you earn on this account. round your answer to the nearest tenth of a percent

Rate of Return Analysis: The table below shows the cash flows associated with a certain investment....

Rate of Return Analysis: The table below shows the cash flows associated with a certain investment. (a) How many possible rates of return are there for this set of cash flows? (b) Find all the rate of return values for these cash flows between 0% and 100%. Please, explain and show solution procedures. Year 0 1 2 3 4 5 6 Cash Flow ($) 15,000 -30,000 1500 6000 6000 6000 6000

The inflation rate over the past year was 4.2 percent. If an investment had a real...

The inflation rate over the past year was 4.2 percent. If an investment had a real return of 9.4 percent, what was the nominal return on the investment?

During a certain year, the rate of interest on a British deposit was 12 percent while...

During a certain year, the rate of interest on a British deposit was 12 percent while the same on a U.S. deposit was 8 percent. This motivated a few big U.S. investors to invest in British deposits. However, after a year, the U.S. investors received lower rates of return on the British deposits compared to the U.S. deposits. Explain two possible reasons for this outcome

Find rate of return on your investment if P = $1000 and annual income = $71...

Find rate of return on your investment if P = $1000 and annual income = $71 for 25 years of your business.

You are promised a nominal return of 13% on a 1-year investment, and expect the rate...

You are promised a nominal return of 13% on a 1-year investment, and expect the rate of inflation to be 4% during that period. The real rate you expect to earn is % Please enter your answer with TWO decimal points.

suppose the nominal risk-free rate of return in the U.S. is 2.8% and the inflation rate...

suppose the nominal risk-free rate of return in the U.S. is 2.8% and the inflation rate is 1.50%. what is the required rate of return ( or interest rate on a BBB-rated corporate bond with a default risk premium (or default spread) of 1.85%? ignore the liquidity and maturity premiums.

Question